Lunch with Nick Curtis

Nick Curtis . . . walked away from a top corporate position to do his own thing as an entrepreneur in the resources industry.
Photo: Peter Braig

by
By Colleen Ryan

On a sunny Sydney Saturday
Nick Curtis
strolled into Lucio’s restaurant in Paddington, casually dressed and relaxed, looking more like a fan arriving at an AFL game than a former investment banker turned gold and rare earth miner who has made many, many millions out of the resources game.

Curtis is the founder of
Sino Gold
and executive chairman of
Lynas Corporation
. He travels mostly under the radar of the Australian corporate world. He prefers it that way. Except when it comes to philanthropy.

Curtis was chairman of the board of St Vincents and Mater hospitals for almost six years until 2009. He is on the board of the Garvan Institute into medical research. And he has recently donated half a million dollars of his own funds to launch a study into urban mental health.

But Curtis stands out from the pack of canny Australian business operators of his generation for a particular reason. This is a guy who left a top executive position with Macquarie Bank in the early 1990s to throw in his lot with the Chinese government. He went to work for a Chinese SOE (state-owned enterprise). Intriguing.

Lucio’s was Curtis’s choice of restaurant for lunch – for the art and the ambience, as much as for the food. And it is only a short walk from his home in Woollahra, an Espie Dodds-designed house purchased from the Golden Tonsils of radio, John Laws (there is something about Curtis, real estate and big names. He recently sold his Palm Beach holiday home to Jill and Neville Wran, the former NSW premier and his literary agent wife).

I had never met Curtis before and had never even heard of him until I moved to China six years ago. But I had a question that I was itching to ask.

How had he got under the radar of the Chinese government’s stranglehold on that country’s resources?

How on earth had he managed to take a state-owned goldmine in southern China, bundle it into a corporate entity and then list it on the Australian stock exchange as Sino Gold?

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Well, that is two questions. And there was a third. What possessed him in 1993, as the father of three young children and with an assured future in the Australian corporate world, to leave Macquarie Bank and work for the Chinese government, a good decade before most of the rest of us had woken up to the impact of Chinese demand on resources markets?

Surely there was a rich history of family connections with China that gave him this edge. No one can penetrate China’s iron grip on its resources, but Curtis and his team, which included former Macquarie Bank colleague Jake Klein, had managed to do that with Sino Gold. And nobody else has managed to do the same – before or since (Sino Gold floated on the ASX at $100 million in 2001 and was taken over by Canadian group Eldorado Gold in October last year for $2.2 billion).

“Well, there was a very small connection [with China]," Curtis concedes. And the story he went on to weave was way out in left field.

“My academic qualification is art history," he explained. “I did my honours year in 1978, just as China was opening up, and I did a thesis on early Chinese art. It was very specific – 13th-century paintings of arhats. They are Buddhist saints."

And with that Curtis starts to laugh.

“I’ll tell you a funny story," he says as he leans across the table.

“The other day I was in Hong Kong at a mines and money conference and I happened to talk to a fellow, Dixon Hall, who I had never met before. He is the business development officer for a Canadian mining company doing something in China. So we were talking and I said I had been in China since 1993. He said, ‘I was there earlier. I was there in 1978.’ I asked him: Why?

“It turns out that Dixon Hall studied art history and his thesis was also on 13th-century Chinese painting – of arhats.

“I couldn’t believe it – there are probably two people in the world [who had that thesis topic in 1978] and here they are, both at a mining conference together in Hong Kong that many years later."

It is an amusing story but it doesn’t really explain Curtis’s China coup.

That came later. And it involved a special friendship.

After completing university, Curtis tried to break into the art world. He worked with Sydney art dealer Tim Goodman and he even tried to launch out on his own.

“I was selling all these paintings and I kept selling them to bankers and stockbrokers. And I thought, ‘I have got the wrong end of this stick. I need to be on the other side – I want to buy them, not sell them’."

He applied for a job at what was then Hill Samuel Australia as a futures broker. “I must have said fine arts fast enough that they thought I said finance and nobody ever asked me again," he quips.

“I stayed there as it became Macquarie Bank – ran the commodities division there. It was a great creative time to be involved in those markets [in the ’80s and early ’90s]."

As Curtis told his tale, the waiter had been lurking. He finally grabbed the opportunity to explain the specials. Curtis is no gourmand – or perhaps he is on a diet. “Can you do the special fish without the sauce?" he asked. “Olive oil and lemon and a bit of salad."

A glass of house pinot grigio and half-a-dozen natural oysters were added to the order. I decided to follow suit and that was it for the formalities.

“It is going to look a bit boring – well, we can always imagine we had something different," he said apologetically.

So why did he choose this restaurant? “I love Italian food and I think Lucio’s is one of the best restaurants around. I love the atmosphere – the art. It is an institution. It is good art – they are all friends of Lucio’s. There is a Fred Cress over there – Fred died recently. There is a big Michael Johnson in the other room. I have quite a number of Michael’s works. I think he is an interesting artist. Tim Storrier is over there.

“You would have to ask Lucio how he did this. There are obviously some contras and so on along the way, though. It is just a nice atmosphere."

But back to China. Curtis’s time at Hill Samuel-Macquarie got his entrepreneurial juices going in terms of the gold industry. He joined in the early 1980s just as gold hit its highs and then began its inexorable decline. “No one was interested in gold." But Curtis remained a fan.

Then, in 1992, he had a meeting that was to change his life. Xu Hanjing, then head of China Non Ferrous International Export Corporation, was interested in the possible development of an alumina refinery in Queensland. Curtis had been recommended to him by a geologist as someone who might be able to help with finance

“It was a bit random," Curtis admits. “I was in futures but was doing a bit of banking with gold assets. Advisory wasn’t my area."

But they had lunch and so began a friendship that has lasted for decades.

“I was just interested in China and the emergence of China and what it was really about. We had a conversation which was just fascinating. He is such an interesting man, the most intelligent man I had come across in a long, long time. In fact one of his first jobs was to translate the Encyclopedia Britannica into Chinese. He is a fluent English speaker.

“To explain the system of government in China he said, ‘China is a bit like renaissance Venice. It is run by the Doges as an elite who are empowered to take it from feudalism to capitalism’. I went, ‘What!’ This was 1992 and I was just blown away."

Did his interest in 13th-century art help? “No, it was one of those moments."

Xu also confided that he was really interested in helping China purchase resources assets offshore; perhaps Curtis could help.

After several more lunches and dinners, Curtis eventually went off to China in 1993. He travelled in a steam train across the Yellow River, visited remote areas of Gansu province and became entranced by the potential.

“I saw it as twofold," Curtis says. “One was the demand within China for materials – it was obvious there was going to be a construction boom. The other was the arbitrage between the value of the assets in China and the value of the assets outside of China. The planned economy doesn’t see minerals in the ground as having any real value because discounted cash flow is a capitalist thing. How do you DCF something if you don’t measure the cost of capital? It is a fundamental issue with the whole planned economy – cost of capital is not measured.

“So I thought, there is an interesting opportunity if we can develop assets within China. My sense [at that time] of what to do entrepreneurially was not to go out and buy a West Australian goldmine because that was a pretty crowded space, but to think about geographic risk.

“So I had a bit of an inkling that maybe there were some assets in China – not having a clue how hard this journey would be – that we could develop, that we could get for values that were not the same as the outside China values."

It took a while for the dream to be realised. First, Hanjing organised for the Chinese SOE that controlled all non-ferrous activity in China, CNMC, to put $US30 million into a Cayman Islands company called Sino Mining International that Curtis would run.

This was a successful venture, eventually controlling some $500 million in assets. Its biggest deal was the purchase of a swag of Alcoa’s alumina assets – and it had an undeveloped gold in southern China, Jinfeng.

Sino Mining International was based in Sydney and the alumni of the company now includes some of China’s top resources executives, including Chinalco’s Wang Wenfu and Frank Xu, former head of corporate affairs in Beijing for BHP Billiton.

“It was fascinating – such a period of rethinking, the beginning of reform. It was an extraordinarily creative period in China. And we were operating the mine in China, which was really interesting, coming from being an investment banker to running a gold mine in the middle of China."

But the big break came when then premier Zhu Rongjii began his reform of SOEs and, overnight, scrapped CNMC, in the process handing most of its assets back to the provinces. “Sino Mining International finished up one of the few centrally-owned groups with nowhere to go," Curtis explains.

“So the political fight was on and we had no idea where we were going.

“In the end Minmetals, out of the blue, got control of Sino Mining International – not for the money but for the political play going on in the background. And we got permission from my former chairman Kang Yi, who is now president of the State Non Ferrous Association, we got permission absolutely above board to privatise the goldmine. We knew that otherwise the goldmine would die."

How did he get that?

“Well, it was complicated, but we got it," Curtis says.

“They [Minmetals] were mainly interested in the alumina asset. No one was too sure about the mine. So we said, ‘All right, we will take the mine out’. The gold price was $250 at that time. It wasn’t making money, no one wanted it. But I thought, here is a kernel for us to build on. That was 2000.

“It was hugely political. At that stage I said, ‘I have had enough. I don’t want to work for the government any more’."

Within a year, after frantic international fund-raising by Curtis, Sino Gold was born and listed on the ASX. It was almost seven years to the day since Curtis had waved goodbye to Macquarie Bank and joined his Chinese SOE.

Curtis remained chairman of Sino Gold until 2005 and Klein was chief executive. But eventually it was time to move on and do other things.

Again Curtis was contrarian – this time it was rare earth mining.

He explains. “I found out through a woman who was actually assigned to me at Sino Mining International that China had this thing called rare earths. And Harry Wong, who is my close colleague, had been working for us and was a rare earths engineer.

“When I realised that every computer in the world needed a little piece of this stuff and that China had 95 per cent of the world market, I thought, ‘If we can find a non-China source of supply and build an integrated source of supply, from the mine all the way through to the end of the commodity channel, then we will naturally capture 20 per cent of the world market because people will want that divergence’."

It was quite incredible that Curtis reached his epiphany on rare earth mining in 2002. It was several years before the western business community started to take notice.

“I didn’t understand the full blossoming of the technology," Curtis says. “I didn’t see the extent of the push. But I knew that these were really important materials, that China had 5000 PhDs specialising in rare earths and that Deng Xiaoping had said in 1993, ‘Saudi Arabia has oil, China has rare earths’.

“The Chinese government was putting a massive effort into it and I was probably one of the first foreigners to go and see a rare earth operation in China. They considered it to be top secret."

Eight years on, Curtis has his rare earth mine at Mount Weld in Western Australia, owned by Lynas Corporation of which he is chairman, and the processing facility is under way in Malaysia.

It hasn’t been an easy path.

The global financial crisis hit Curtis in more ways than one. His funding for Lynas fell apart in early 2009 when bondholders withdrew their support.

A back-up plan to bring in a Chinese lifeline in the form of a 51 per cent investment by China Non Ferrous was knocked back by the Foreign Investment Review Board.

“We were roadkill, with two Mack trucks just going at each other at the time – the Australian government and the Chinese government trying to prove how to play the game." But Curtis bounced back with a $400 million equity raising and the rare earth dream lives on.

At the same time, he was battling problems on the St Vincents board – again courtesy of the global financial downturn, when certain investments turned sour. It was not directly in Curtis’s bailiwick, but nevertheless he chose to take responsibility and step down from the chair. He remains on the board and he retains his keen interest in the health sector, particularly mental health.

“Mental health is the greatest gap in healthcare needs in Australia. Even if you look at the huge $7.9 billion allocation towards current healthcare, $128 million of that is going to mental health.

“The burden of disease is 20 per cent, the allocation of capital is about 1½ per cent. That is the story of mental health – the burden of disease far outweighs the allocation of resources."

And there is a personal connection. “The burden of disease is not just the individual, but the system the individual lives in and the family devastation. It is very direct for me – and I have got a brother who has got schizophrenia.

“The line between where I sit and where someone seriously affected by the disease sits is pretty fine. It is a few circumstances – no one chooses that life. It is just what happens."

Curtis has funded the launch at St Vincents of a project to research urban mental health. “We have called it Faces in the Street after Henry Lawson’s provocative poem," Curtis says. “He has a great line in the poem which goes something like this, ‘I wonder if the apathy of wealthy men would endure if their windows were level with the faces of the poor’."